Pontifications: Melancholy about Embraer’s 50th year

By Scott Hamilton

June 10, 2019, © Leeham News: Embraer is 50 years old Aug. 19.

This must be the classic case of mixed feelings. By the end of the year, if regulators approve, the marquis business unit, Commercial Aviation, will be spun off and the Embraer name for it disappears into Boeing Brasil-Commercial (BB-C).

Boeing will own 80% of the new joint venture and Embraer retains 20%. Boeing has the governance and chairman. Embraer’s CEO of Commercial Aviation becomes president and CEO of BB-C, but the direction now will clearly be set by Boeing.

Sixty percent of Embraer’s services unit goes into BB-C.

Embraer and Boeing also created a second JV, for the KC-390 program. Embraer retains 51% and Boeing gets 49%.

Embraer retains full control over the remaining defense and business jet units.

Officials put a “best face” on the pending changes at Embraer’s pre-Paris Air Show briefings May 27-29, but they really could not mask the uncertainties and, to some degree, resignation about the future.

Underlying sadness

I have an underlying sadness about the JV. I know many of the Embraer people pretty well. Aside from John Slattery, who moves from CEO of Commercial Aviation to CEO of the JV, few if any announcements have been made about the other staff who will make the move.

It’s highly likely that many of Slattery’s key people will make the transition, at least initially. Boeing simply doesn’t have the expertise in the Embraer market space that Slattery’s team does.

But in any takeover—and despite rhetoric, the JV is clearly a Boeing takeover—eventually incumbent personnel are replaced. I’ll be sad to see this happen.

Embraer’s culture is very, very different than Boeing’s. Embraer’s culture is, well, nice. Boeing’s culture is take-no-prisoners, cutthroat and, well, not nice. (Individuals at Boeing are, in fact, good people. The corporate culture is something else.) I fear the Embraer culture shifts to borrowed time once the JV is complete.

This melancholy aside, let’s look at Embraer Commercial Aviation’s 50 years.

Humble beginnings

Embraer made its initial mark on the commercial aviation scene with the small, unpressurized Bandeirante, a twin-engine design dating to 1965. The EMB-110 entered service in 1973 with the Brazilian Air Force, which uses the airplane to this day. It entered commercial service the same year with TransBrasil. Nearly 500 aircraft were produced.

The “Bandit” was replaced by the EMB-120 Brasilia, a pressurized, larger aircraft seating 30. It entered service with the USA’s Atlantic Southeast Airlines in 1985. More than 350 were produced.

The Brasilia led to the ERJ family (135/140/145), using the same cross section, a cramped 1×2 cabin. The ERJ competed with the Bombardier CRJ, which was developed from the Challenger business jet. The CRJ was slightly wider, allowing for a 2×2 configuration, but it, too, was cramped.

The ERJ continues in production today as the Legacy business jet, with more than 1,200 models of commercial and business types produced.

Big leap

As the year 2000 approached, Embraer realized its cramped ERJ series needed replacement. Officials made the bold decision to design an entirely new airplane with comfort that gave passengers space similar to the Airbus A320.

The E-Jet, with its 2×2, 18-inch wide seating and—at the time—pretty good overhead bin space was a huge departure from the ERJ and CRJ designs. The original family included four models: the 170, 175, 190 and 195.

About 1,500 of these have been produced with several hundred on backlog and option.

Its successor, the E2, dropped the 170 and stretched the 195 to make it more attractive. This family was launched in 2013; the first E190-E2 entered service last year.

Sales have been slow, with only some 150 firm orders in backlog. Fuel prices dropped dramatically after the program launch and have stayed relatively low, depressing the need for them. The surge in aging aircraft doesn’t happen until mid-next decade. Finally, the planned JV casts a cloud over sales while airlines wait for regulatory approval to see what Boeing will bring to the table to wheel-and-deal.

Slattery, the Embraer Commercial CEO, says certification of the E195-E2 recently should spur sales. Yet, certification and entry into service of the E190-E2 didn’t provide a meaningful boost.

Vanquishing rivals

Embraer came out of nowhere with its Bandit and Brasilia, yet vanquished established rivals.

Competition then was fierce. Beech offered the 1900. British Aerospace had the Jetstream. Saab sold the 340.

Each of these disappeared.

Fokker offered the F-27/50 against the ERJ and so did BAE with its Advanced Turbo Prop ATP. Neither survived against the ERJ and CRJ.

Bombardier, which invented the regional jet with its CRJ, couldn’t compete against the E-Jet.

Although the CRJ-900 has better economics, the passenger experience is inferior to the E-Jet. Furthermore, with attention focused on developing the C Series beginning in 2008, Bombardier executives and sales force neglected the CRJ sales and enhancements.

Embraer eventually captured some 80% of new sales in North American.

Trading barbs

Still, if sales wars diminished, the war of words did not.

Two weeks ago, Bombardier claimed Embraer is abandoning the sub-100 seat market because the E175-E2 doesn’t meet US Scope Clause requirements, while the CRJ900 does.

“With over 140 owners and operators flying people in over 90 countries, the CRJ Series family remains a leader in the 60- to 100-seat market, which is our focus, unlike our competitors. Embraer is exiting the sub-100 seat-market and is trying to compete in the small single-aisle one with their E2, and their E175-E2 is not compliant in North America. Irrespective of this fact, the CRJ Series remains the most successful regional aircraft with over 1900 orders, has the widest support network and market base,” a Bombardier spokesman said.

Slattery fired back.

“It’s ironic to me that Bombardier makes the assertion that Embraer is exiting the sub-100 seat segment when in fact they are the ones exiting the commercial aviation sector!” he wrote LNA.

“They habitually account for all the CRJs in their assessment…beginning with the CRJ200 which they stretched multiple times and eventually into the albatross 1000.  Again, I must remind my friends in Mirabel that Embraer made the bold move to reinvest significantly (and without government subsidies I might add) in the space early in the last decade with the development of the clean-sheet EJet family (over 1,500 flying today) and we never aggregate the successful ERJ deliveries into our numbers.”

Slattery said Embraer is committed to producing the E175-E2 and sees these accounting for one-third of the E2 family sales. He sees a market outside the US as well.

Noting that Bombardier is offering the CRJ program for sale, he added, “understandably it’s somewhat bemusing for me to read Bombardier’s statement that we’re exiting that market space.

“I wish Bombardier well in selling off the remnants of the CRJ line and until then look forward to continuing the battle in the trenches!”

Slattery is a reporter’s dream. He’s candid, witty, effusive and available—everything Boeing executives are not.

I worry that Boeing’s culture will chop Slattery off after the JV is approved.

This is another reason to look at Embraer’s 50th with mixed feelings.

 

 

 

 

 

11 Comments on “Pontifications: Melancholy about Embraer’s 50th year

  1. Or maybe major shareholders will tire of legalistic Boeing and in the personnel changes that follow MAX see Slattery as the ideal future CEO of BCA.

  2. “Carve out process”,is this American English or business speak that I don’t understand ,or a serious lack of diplomacy?

    • nofinda. was the article changed ( I see 2 comments but the frontpage mentions 3 )

      then a US takeover has never been good for any body.

      • It’s in the following article, the bit you can read without paying!Breathtaking.

  3. As a Brazilian, engineer, pilot, experimental airplane builder, having also worked for many years in a large American corporation, I couldn’t agree more with each and every word you said. Share exactly the same feelings.

  4. Will be sad to see EMB going the BBD route.

    I see a definite requirement for a new RJ with 50-80 seats, was surprized to see how many ERJ145’s and CRJ200/700’s are still in use by US Regional airlines. The ATR42/72’s in the long term will most likely be replaced by prop/s with Hybrid power.

    In the mean time EMB could be in a good position to build an 50-80 seat overwing aircraft based on their experience with KC390, the GE Passport a possible engine option. Such an aircraft could have civilian and other applications.

  5. I ask for your tolerance for this off topic post, but this site seems like a good place to ask an aviation related question.

    I have followed the development of the Tecnam p2012 since it was announced in 2012. In December 2018 the p2012 achieved EASA certification with FAA certification to follow “shortly” with first delivery to Cape Air in February. Cape Air was to take delivery of 8 p2012’s in 2019.

    Since EASA certification, none of these program milestones were achieved. There have been no news releases from either Tecnam or Cape Air explaining the delay.. Does anyone know what is happening with the p2012?

  6. Scott:

    I agree on your part about Good People. There are gobs of good, decent people in all organizations I have worked with and been around. Yes there are some bad ones as well, but only because management likes their water boys and snitches.

    The Corporate Culture pretty much sucks (there may be exceptions)

    I just pulled the plug from a combo outsourced major corporation entity.

    The last thing they did was accuse me and a fellow worker of causing severe damage to a lift basket (and no investigation).

    The co worker was gone and I was given the opportunity to throw him under the buss.

    I not only refused, I wrote up the aspects of why it could not have occurred where they said we did it and did so in my self administered exit interview.

    While the accusation stands as garbage by itself, anything I would need to disused with the company in the future would be poisoned with the ” you did that basket and did not report it.

    Well that can work both ways if you know how to write (and despite the typos I do here, I can and do) – managers name is now mud with 10 or so provable major violations.

    In this day and age is easy to pull video to see what condition anything is as the coverage is extensive (more so in our case). Never happened. Setup.

    Its amazing how low is all fallen. 28 years of dedicated and solid and occasionally brilliant solutions of service and then thrown under the bus.

    Its going to be interesting to watch it hit the fan for the US as my generation goes and they have nothing to replace it with.

    You can plug in a person and a title, but you can’t replace 50 year of learned skills.

  7. One can’t help but feel that Embraer is going to become a shadow of its former self. Boeing needs Embraer – but I can’t see that Embraer needed Boeing.

    Boeing’s “not nice” corporate culture is what lies behind the company’s current problems. Everything about a successful business endeavour relies on long term and hearty relationships with suppliers, staff, the lot. Screwing one’s suppliers and staff for every dime, every single possible concession is not going to bear fruit in the long run.

    If they start treating their newly acquired staff badly, well I shudder to think what’ll happen. If that’s what happens, and Boeing does the sterotypical US-corporation-buys-foreign-firm-bend-them-to-our-will thing, Boeing may just have spent a fortune on some designs, some manufacturing facilities, and not a whole lot else. They did buy a name too, “Embraer”, but they’ve just gone and tossed that on the fire and replaced it with “Boeing” that, from a corporate branding reputational point of view, is somewhat toxic at the moment. Or, hadn’t they noticed?!

  8. I also have sad feelings about this merger. I am not even sure that this is the best for them.

    For strange reasons I always thought that they would finish in the arms of Airbus but the BBD story changed it all.

    Anyway, happy anniversary Embraer!

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